Abstract/Description

SMEs are a fundamental part of the economic fabric in developing countries and they play a crucial role in furthering growth, innovation and prosperity. In Zimbabwe, the SME sector has been reckoned by smallholders; farmers, miners etc. as it supplies intermediate technologies to resource-poor small scale players. This paper employs a stochastic frontier production function and technical inefficiency effects model to measure and explain the technical efficiency of informal metal fabricating firms in Zimbabwe. Analysis relied on cross-sectional firm level data from a survey conducted on informal metal fabricating SMEs between July 2012 and April 2013. Average technical efficiency was found to be low at 51.1%, indicating a high degree of technical inefficiency in the production process. Results also show that the production process is predominantly labor intensive. Moreover, technical inefficiency effects model reveals that age of firm, firm location, market information access, Information Communication Technology (ICT) use and experience are key factors contributing to firm technical efficiency. The paper recommends that government should focus more on creating an enabling environment to foster SME growth, promote technology adoption, and encourage the development of infrastructure and facilities suitable to the enhancement of business operations of SMEs to improve their technical efficiency.